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                                                              Exhibit 10(xxviii)


                              EMPLOYMENT AGREEMENT


         This Employment Agreement is entered into as of the _____ day of
__________, 1996, by and between Frederick G. Merkel ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.

                              W I T N E S S E T H:

         WHEREAS, Executive is currently employed by Employer as a Regional Vice
President, and the President and Chief Executive Officer of HealthAmerica
Pennsylvania, Inc. ("HAPA"), Employer's wholly owned subsidiary, and Employer
and Executive desire to enter into an employment relationship; and

         WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.

         NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:

         1. EMPLOYMENT. Employer currently employs Executive, and Executive
hereby agrees to continue his employment as Regional Vice President of Employer
in charge of the Eastern Region, and as President and Chief Executive Officer of
HAPA on and after the Effective Date (as defined in Section 3 below) under the
terms and conditions hereinafter set forth.

         2. DUTIES. As Regional Vice President of Employer and President and
Chief Executive Officer of HAPA, Executive shall report to the President and
Chief Executive Officer of Employer, and the Boards of Directors of Employer and
HAPA, and shall be responsible for the establishment and implementation of
Employer's policies and directives, the overall direction, administration and
leadership of HAPA and the Eastern Region, including, but not limited to, the
establishment and implementation of policies and directives, formulation of long
range plans, goals and objectives, effective management of employees, and such
other powers and duties normally associated with such position or as may be
delegated or assigned to Executive by Employer's President and Chief Executive
Officer or by the Boards of Directors of Employer or HAPA. During the term of
this Agreement, Executive shall also serve without additional compensation in
such other offices of the Employer or its subsidiaries or affiliates to which he
may be elected or appointed by the Chief Executive Officer of Employer or by the
Board of Directors of Employer or its subsidiaries or affiliates, respectively.

         3. EFFECTIVE DATE. This Agreement shall be effective as of the date set
forth above (the "Effective Date").


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         4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of two years beginning
on the Effective Date. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.

         5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of no less than Two Hundred
Sixty-five Thousand Dollars ($265,000), annually, effective as of September 1,
1996, to be reviewed on an annual basis based upon the performance of Executive.
The Base Salary shall be paid to Executive in equal bi-weekly or semi-monthly
payments in accordance with Employer's normal payroll policies.

         6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:

        (a) EMPLOYER STOCK OPTIONS: Executive will be granted a
            nonqualified stock option to purchase 100,000 shares of Common
            Stock of Employer at an exercise price per share equal to
            $12.75, which is the closing price per share of the Common
            Stock of Employer as reported on the Nasdaq National Market on
            September 6, 1996; provided, however, receipt of 25,000 of the
            100,000 options is contingent upon receipt of a Certificate of
            Cancellation executed by Executive agreeing to the
            cancellation of the 25,000 performance based stock options
            granted on March 1, 1996. The option will vest at a rate of
            one-fourth of the shares per year over a four-year vesting
            period beginning on the date of grant, or in the event
            substantially all of the capital stock or assets of Employer
            are sold or transferred or Employer is merged into or
            consolidated with another unaffiliated entity, then the option
            will become fully vested on the date of closing. The option
            will expire on the tenth anniversary of the date of grant
            unless sooner terminated by termination of employment
            hereunder. The option shall be granted under and in accordance
            with the terms and conditions of Employer's Second Amended and
            Restated 1993 Stock Option Plan and a letter agreement between
            Executive and Employer dated the Effective Date.

        (b) RETENTION BONUS: Executive shall be eligible to receive a
            retention bonus ("Retention Bonus") in the amount of Four
            Hundred Thousand Dollars ($400,000) to be paid in full on
            January 31, 1999 ("Payment Date"), if Executive is and has
            been continuously employed with Employer or a subsidiary of
            Employer from the Effective Date to the Payment Date.

        (c) ADDITIONAL BONUS COMPENSATION: Executive shall be eligible to
            participate in the annual incentive bonus programs available
            to officers of Employer and will be



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            eligible to receive other incentive compensation in accordance
            therewith as determined on an annual basis by the Compensation
            and Benefits Committee of the Board of Directors of Employer.

        (d) CAR ALLOWANCE: At the end of the lease term of Executive's
            current vehicle leased by Employer for Executive's use,
            Executive shall be entitled to a car allowance of $550.00 per
            month.

        (e) OTHER BENEFITS: Executive will be eligible for participation
            in any employee benefit programs available to officers of
            Employer from time to time as provided in Section 16 below.

         7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.

         Executive shall also be reimbursed for expenses associated with the
relocation of Executive to another location of the Employer or its subsidiaries
or affiliates. The extent and amount of such expense shall be consistent with
the normal policy of the Employer.

         8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 14(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.

         9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 25 below) or (ii) Executive
terminates his employment with Employer for Good Reason (as defined in Section
25 below) within 90 days following the first existence of Good Reason, the
following provisions will apply:

        (a) Employer shall during the Severance Period (as defined in
            Section 25 below), continue to pay Executive an amount equal
            to Executive's Base Salary at the time of termination of
            employment.



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             Such amount will be paid during the Severance Period in
             monthly or other installments, similar to those being received
             by Executive at the date of termination of employment, and
             will commence as soon as practicable following the date of
             termination of employment.

         (b) Executive shall be allowed to exercise options granted to him
             and vested at the date of termination for a period of two
             years from the date of termination, all in accordance with the
             remaining terms and conditions set forth in Employer's stock
             option plans and the respective stock option letters issued to
             Executive.

         (c) During the Severance Period Executive and his spouse and
             family will continue to be covered by all Welfare Plans (as
             defined in Section 25 below), maintained by Employer in which
             he or his spouse or family were participating immediately
             prior to the date of his termination as if he continued to be
             an employee of Employer; provided that, if participation in
             any one or more of such Welfare Plans is not possible under
             the terms thereof, Employer will provide substantially
             identical benefits to the extent possible. If, however,
             Executive obtains employment with another employer during the
             Severance Period, such coverage shall be provided until the
             earlier of: (i) the end of the Severance Period or (ii) the
             date on which the Executive and his spouse and family can be
             covered under the plans of a new employer without being
             excluded from full coverage because of any actual pre-existing
             condition.

         (d) Executive shall not be entitled to payments during the
             Severance Period attributable to compensation for vacation
             periods he would have earned had his employment continued
             during the Severance Period or to unused vacation periods
             accrued as of the date of termination of employment.

         (e) During the Severance Period Executive shall not be entitled to
             reimbursement for fringe benefits such as car allowance, dues
             and expenses related to club memberships, and expenses for
             professional services.

         Compensation under Section 9(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 14 hereof.

         10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only his Base
Salary due through the date on which his employment is terminated at the rate in
effect at the time of notice of termination. The Employer shall then have no
further obligation to Executive under this Agreement.

         11. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the
event Executive's employment is terminated at any time within three years
following the occurrence of



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a Change in Control as set forth in that certain Change in Control Agreement (as
defined in Section 25 below), then this Agreement shall become null and void,
except with respect to Sections 6 (a) and 6 (b), which shall remain in full
force and effect, and the terms and conditions of the Change in Control
Agreement shall control.

         12. SETOFF.

         (a) With respect to Section 9, payments or benefits payable to or
             with respect to Executive or his spouse pursuant to this
             Agreement shall be reduced by the amount of any claim of
             Employer against Executive or his spouse or any debt or
             obligation of Executive or his spouse owing to Employer.

         (b) With respect to Section 9, payments or benefits payable to or
             with respect to Executive pursuant to this Agreement shall be
             reduced by any amount Executive may earn or receive from
             employment with another employer or from any other source,
             except as expressly provided in Section 9(c).

         13. DEATH. If Executive dies during the Severance Period:

         (a) All amounts payable hereunder to Executive shall, during the
             remainder of the Severance Period, be paid to his surviving
             spouse. On the death of the survivor of Executive and his
             spouse, any remaining benefits under this Agreement shall be
             paid to the estate of survivor.

         (b) The spouse and family of Executive shall, during the remainder
             of the Severance Period, be covered under all Welfare Plans
             made available by Employer to Executive or his spouse
             immediately prior to the date of his death to the extent
             possible.

         Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.

         14. RESTRICTIVE COVENANTS.

         (a) Confidential Information. Executive agrees not to disclose,
             either during the time he is employed by the Employer or
             following termination of his employment hereunder, to any
             person (other than a person to whom disclosure is necessary in
             connection with the performance of his duties as an employee
             of Employer or to any person specifically authorized by the
             Board of Directors of Employer) any material confidential
             information concerning the Employer or any of its Affiliates,
             including, but not limited to, strategic plans, customer
             lists, contract terms,



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                  financial costs, pricing terms, sales data or business
                  opportunities whether for existing, new or developing
                  businesses.

         (b)      Non-Competition. During the term of employment provided
                  hereunder and for a period of two years after termination of
                  employment, Executive will not directly or indirectly own,
                  manage, operate, control or participate in the ownership,
                  management, operation or control of, or be connected as an
                  officer, employee, partner, director or otherwise with, or
                  have any financial interest in, or aid or assist anyone else
                  in the conduct of, any business which is in competition with
                  any business conducted by the Employer or any Affiliate of
                  Employer in any state in which the Employer or any Affiliate
                  of Employer is conducting business on the date of termination
                  or expiration of this Agreement, provided that ownership of 5%
                  or less of the voting stock of any public corporation shall
                  not constitute a violation hereof.

         (c)      Non-Solicitation. During the term of employment provided for
                  hereunder and for a period of two years after termination of
                  employment, Executive will not (i) directly or indirectly
                  solicit business which could reasonably be expected to
                  conflict with the interest of Employer or any Affiliate of
                  Employer from any entity, organization or person which has
                  contracted with the Employer or any Affiliate of Employer,
                  which has been doing business with the Employer or any
                  Affiliate of Employer, from which the Employer or any
                  Affiliate of Employer was soliciting business at the time of
                  the termination of employment or from which Executive knew or
                  had reason to know that Employer or any Affiliate of Employer
                  was going to solicit business at the time of termination of
                  employment, or (ii) employ, solicit for employment, or advise
                  or recommend to any other persons that they employ or solicit
                  for employment, any employee of the Employer or any Affiliate
                  of Employer.

         (d)      Consultation. Executive shall, at the Employer's written
                  request, for a period of one year after termination of
                  employment, cooperate with the Employer in concluding any
                  matters in which Executive was involved during the term of his
                  employment and will make himself available for consultation
                  with the Employer on other matters otherwise of interest to
                  the Employer. The Employer agrees that such requests shall be
                  reasonable in number and will consider Executive's time
                  required for other employment and/or employment search.
                  Executive shall be reimbursed for ordinary and necessary
                  expenses incurred by Executive on behalf of Employer and its
                  Affiliates, in providing consultation, upon presentation of
                  vouchers in accordance with the usual and customary procedures
                  of Employer in relation to such expense items, except that
                  Employer may elect, at its option, to pay such expense items
                  directly rather than reimburse Executive therefore.



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         (e) Enforcement. Executive and the Employer acknowledge and agree
             that any of the covenants contained in this Section 14 may be
             specifically enforced through injunctive relief but such right
             to injunctive relief shall not preclude the Employer from
             other remedies which may be available to it.

         (f) Continuing Obligation. Notwithstanding any provision to the
             contrary or otherwise contained in this Agreement, the
             agreement and covenants contained in this Section 14 shall not
             terminate upon Executive's termination of his employment with
             the Employer or upon the termination of this Agreement under
             any other provision of this Agreement.

         15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.

         16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.

         17. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.

         18. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.

         19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of



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Executive, or to its principal office in the case of the Employer and the date
of receipt shall be deemed the date which such notice has been provided.

         20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.

         21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.

         22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement, except as expressly referenced herein, and may
not be changed orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.

         23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.

         24. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

         25. DEFINITIONS. For purposes of this Agreement:

         (a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
             promulgated under the Securities Act of 1933, as amended.

         (b) "Change in Control Agreement" shall mean that certain
             Agreement (for Key Senior Executives) dated September 12,
             1995, between Employer and Executive, a copy of which is
             attached hereto as Exhibit "A".

         (c) "Good Cause" shall be deemed to exist if, and only if:

             (i)      Executive engages in material acts or omissions
                      constituting dishonesty, breach of fiduciary
                      obligation or intentional wrongdoing, malfeasance or
                      non-compliance with written directives approved by
                      the Chief Executive Officer of Employer or the Board
                      of Directors of Employer or HAPA, which are
                      demonstrably injurious to Employer or HAPA; or



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             (ii)     Executive is convicted of a violation involving fraud
                      or dishonesty; or

             (iii)    Executive's unexcused failure to report to work for
                      twenty (20) consecutive days; or

             (iii)    Executive materially breaches this Agreement (other
                      than by engaging in acts or omissions enumerated in
                      paragraphs (i) and (ii) above), or materially fails
                      to satisfy the conditions and requirements of his
                      employment with Employer, and such breach or failure
                      by its nature is incapable of being cured, or such
                      breach or failure remains uncured for more than 30
                      days following receipt by Executive of written notice
                      from Employer specifying the nature of the breach or
                      failure and demanding the cure thereof. For purposes
                      of this paragraph (iii), inattention by Executive to
                      his duties shall be deemed a breach or failure of
                      cure.

             Without limiting the generality of the foregoing, if Executive
             acted in good faith and in a manner he reasonably believed to
             be in, and not opposed to, the best interest of Employer and
             had no reasonable cause to believe his conduct was unlawful in
             connection with any action taken by Executive in connection
             with his duties, it shall not constitute Good Cause.

         (d) "Good Reason" shall exist if:

             (i)      there is a significant change in the nature or the
                      scope of Executive's authority; or

             (ii)     there is a reduction in Executive's rate of base
                      salary.

         (e) "Severance Period" shall mean the period beginning on the date
             the Executive's employment with Employer terminates without
             Good Cause under circumstances described in Section 9 and
             ending on the date that is 24 months thereafter.

         (f) "Welfare Plans" shall mean any health and dental plan,
             disability plan, survivor income plan and life insurance plan
             or arrangement currently or hereafter made available by
             Employer in which Executive is eligible to participate.

         26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.

         27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event



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that Section 14(b) is determined by a court of competent jurisdiction to be
invalid due to overbreadth, such Section 14(b) shall be constructed as narrowly
as necessary to be enforceable.

         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.


                                         -------------------------------------
                                         Frederick G. Merkel

                                         COVENTRY CORPORATION


                                    By:
                                         -------------------------------------
                                         Allen F. Wise
                                         President and Chief Executive Officer





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